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If the rand recovered, would the wine industry win back local customers?

Michael Fridjhon is South Africa's most highly regarded international wine judge, the country's most widely consulted liquor industry authority, and one of South Africa's leading wine writers. Chairman of the Old Mutual Trophy Wine Show since its inception, he has judged in countless wine competitions around the world. Visiting Professor of Wine Business at the University of Cape Town, he has been an advisor to the Minister of Agriculture and is a recipient of the French Chevalier de l'Ordre du Mérite Agricole. Worldwide winner of the Louis Roederer International Wine Columnist of the Year award in 2012, he is the author, co-author or contributor to over 30 books and is a regular contributor to wine publications in the UK, France, Germany and China. He is the founder of , a site which specialises in scoring South Affrican wine and guiding consumers to excellent value for money and quality.

At the Cape, where the roads don’t have potholes, the traffic lights work and residents with time to surf are strangely benefiting from the weak rand, the pathology of the restaurant scene is likely to extend to its other money-spinner, the wine industry.

When my children were much younger, and we were travelling at the Cape, they often prefaced references to home in Gauteng by saying “when we are back in South Africa”.

They never said the same thing when we holidayed in KZN: somehow they knew Durban and the South Coast were palpably part of the greater Republic.

Cape Town was different then, and with the elapse of time the gap has widened. It’s not just the roads that don’t have potholes, the traffic lights that work, the evidence that the administration exists to render services for the citizens rather than to take their rates money and distribute it to deployed comrades who see no connection between their salary cheque and their job description. It’s how things are priced.

You don’t need to look at a Pam Golding catalogue of properties on what is euphemistically called “the Atlantic seaboard” to know that Nettleton Road is not in South Africa. Wherever the European investors and the summer season tourists have spread their munificence, a parallel economy has emerged. The cost of goods and services in this enclave bears more than a passing resemblance to hard currency prices converted at the appropriate multiple.

Those Western Cape residents who are now enjoying an extraordinary boom courtesy of the weak rand would do well to remember George Santayana’s much quoted aphorism that those who do not learn from the past are condemned to repeat it. While there are vast chunks of the Cape Town metropolitan where the residents experience life the way average South Africans see the world, there are also significant segments of the province where a happy air of unreality permeates the environment.

The top-end restaurants (those which feature on the international websites, with high TripAdvisor scores, whose location guarantees them a constant stream of visitors on holiday) are fully booked. Meals cost at least 30% more than the comparable feast in Sandton, and in fairness, are probably worth it. There is a section of the V&A Waterfront the locals call “Death Row” (because it is the quietest stretch within the rolling and increasingly amorphous mall) which has shops and brands that put Sandton’s Diamond Walk to shame. It’s cheaper, even at current exchange rates, to find decent accommodation in Florence or Paris than it is in Cape Town. For roughly four months in the year the Cape becomes a European colony and (except for the constipated traffic) the locals love it.

Who can blame them? The injection of wealth that comes with the tourists (and the “swallows”, foreigners who have a home at the Cape and spend several of the summer months there to escape the rigours of the Northern Hemisphere winter) makes the Western Cape middle-class lifestyle possible. Gautengers who wonder how their Cape counterparts always seem to have time to surf and climb the mountain need to understand that for many of the Peninsula’s inhabitants, it’s not a 12-month working year.

If you’re a restaurateur operating in this environment, it’s easy to assume you’ve been allocated a ticket at the High Table of Life. Very few of your big spenders are “return business” so if you underdeliver and overcharge, how serious can it be with the punters queueing fathoms deep at the door? Even if there’s a risk you might alienate a local or near-local, it’s not all that serious. Their choices are limited. If, in addition, you operate in one of the surprisingly few scenically spectacular locations, you know things would have to be pretty shabby before you’d lose them forever as customers.

Harbour House in Kalk Bay has managed to do that for me, and I’ve never been under any illusion about whether or not to apply the word “haute” before “cuisine” when talking about the establishment. We booked a particular table (if there’s a risk the food will be little better than ordinary, you need to be picky about where you sit) and agreed to a late arrival time for lunch. We still had to wait half an hour (until 15:00) before we were seated, then found ourselves chivvied out of the restaurant because they were setting up for a function starting some time between 5:00 and 6:00. There’s nothing cheap enough (other than the décor, fittings, flatware and crockery) about Harbour House to offer an inducement to return.

As I was mulling grumpily over the careless attitude, which reflects what tends to happen when there are more buyers than sellers in a market, it crossed my mind that the pathology of the Cape restaurant scene is likely to extend to the region’s other money-spinner, the wine industry. More than 50% of all wine produced in South Africa is sold abroad, so the exchange rate is of crucial importance to the country’s grape farmers.

Even allowing for domestic market inflation, and the effect of overseas-sourced cost inputs, they are doing unimaginably well. The average on-shelf price of a bottle of South African wine in the UK is about ?5, of which the producer receives about ?1.20. This hard currency number hasn’t changed significantly in the past three years, but the producer’s income has seen a 70%+ boost. In January 2013 he would have banked just over R16 for every bottle sold; in January 2016 this would have yielded R25. It’s not difficult to see why so many producers, like Cape Town restaurateurs, have lost a little interest in the domestic market.

The problem is that the short-term joys of disregarding their ever-so-slightly needy local consumers depend on an equally short-term memory. They forget that in January 2002 the rand-sterling exchange rate was over R19 to the pound, which, taking account of inflation differentials, was even worse than today’s R22.50 (or thereabouts). In January 2002 no one believed the rand would ever recover: most people were projecting an ever more precipitate slide.

Yet four years later, in January 2006, you could buy one pound for a “mere” R10.71. If “racing certainties” were exactly that, punters would occupy the pound seats and bookies would be bankrupt. Instead, as the late IW Schlesinger is supposed to have said when someone at a race-track explained the set-up to him and asked him if he’d like to place a bet: “when 30 people take on 30,000 and come out on top, it’s a good idea to keep your cash in your pocket.”

We don’t know whether or not our sovereign debt will be downgraded, how long Zuma will stay in office, or whether Pravin Gordhan will hold the centre and bring wastefulness and corruption under control and fiscal discipline to government. We’re not even certain whether the universities will return to academia rather than politics before the money set aside for them this year needs to be paid over.

If (miraculously) a spirit of governance and co-operation is restored, there’s no reason why the rand couldn’t meet the pound at R14. Given domestic market inflation, this would mean the R16 that would accrue to local wine producers for every bottle sold in the UK would not be sufficient to cover production costs.

In turn, this would force them to have to engage with spurned local consumers at exactly the time that the stronger rand would make any number of international wines a more attractively priced alternative.

What I do know is that this has happened before, so it might happen again, and when that does occur, the Cape’s producers may find their home consumers a little less forgiving than they were the last time. DM


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